Land Bank: Fixed Income Investor Roadshow - FY2019Q3
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Investor Roadshow – FY2019Q3 Key Contacts Land Bank Bennie van Rooy Konehali Gugushe Acting Chief Executive Officer Acting Chief Financial Officer +27 12 686 0914 +27 12 686 0941 BVanRooy@landbank.co.za KGugushe@landbank.co.za Sydney Soundy Mohammed Alli Executive Manager: Strategy and Communication General Manager – Investor Relations +27 12 686 0881 +27 12 686 0519 SSoundy@landbank.co.za MMAlli@landbank.co.za Stefan Jansen van Vuuren General Manager – Treasury +27 12 686 0783 Sjvanvuuren@landbank.co.za Arrangers – Rand Merchant Bank (RMB) Arrangers – Basis Points Capital (BPS) Delia Patterson Sisanda Tuku DCM Distribution Chief Executive Officer +27 11 282 1358 +27 11 783 6136 Delia.Patterson@rmb.co.za Sisanda@Bpscapital.co.za Angela Mangope Zefa Nsibande DCM Origination DCM Transactor +27 11 282 1358 +27 11 783 6136 Angela.Mangope@rmb.co.za Zefa@Bpscapital.co.za Land Bank Presentation 2
Contents 1. Business Overview 2. Land Bank 2023/2024 3. Financial Overview 4. Funding Matters 5. Debt Management Programme 6. Interest Rate Risk Management 7. March 2019 Issuance – DRAFT Term Sheet Land Bank Presentation 3
Governance Matters Board Compositions Shareholder Executive Authority 1 – Reappointed for 3 years with effect 1 June 2018 Minister of Finance 2 – Newly appointed for 3 years with effect 1 June 2018 3 – Reappointed for 3 years with effect 1 October 2018 Accounting 4 – Mr. TP Nchocho resigned in Dec 2018. Refer Interim Management Structure Board of Directors Authority 5 – New incumbent starts 1 March 2019 Mr. MA Moloto1 Ms. D Hlatshwayo1 Ms G Mtetwa Ms. DN Motau Ms. SA Lund1 Chairperson Deputy Chairperson Dr. S Cornelius2 Ms. TT Ngcobo Adv. S Coetzee3 Ms. M Makgatho3 Mr. M Makgoba2 Board Committees Risk and Governance Audit and Finance Human Capital Social & Ethics Credit and Investments Committee Committee Committee Committee Committee • Enterprise Risk Management • Internal and External • Monitor, review • Monitor, review • Review and recommend credit Framework, Governance Audit matters and oversee all and oversee all policies, frameworks as well as Architecture, Risk Appetite • Accounting policies Human Capital Social, Ethics and prudential limits and and Tolerance Framework and methodologies matters Environmental guidelines • Approve the Bank’s Risk • Financial matters matters • Review and approve or Management Plan recommend credit facilities in • Review and Monitor the line with Delegations of Power management of all Risks in • Monitoring the organisation All Board Committees are accountable to the Board Executive Committee Exco Accountable to Board Vacant5 Mr. B van Rooy4 Ms. K Gugushe4 Mr. F Stiglingh Mr. S Soundy Ms. M Dlamini CEO CFO CRO EM: Portfolio Management EM: Strategy EM: Human Capital Dr. L Magingxa Vacant5 Ms. L Ndlovu Mr. S Sebueng Mr. M Mzaidume EM: Agri Economics EM: CB&SI EM: CDDB EM: Legal (Company Secretariat) Land Bank Presentation 5
Governance Matters Interim Management Structure Mr Bennie van Ms Kone Mr Sydney Soundy Mr Faride Stiglingh Ms Loyiso Ndlovu Mrs Unathi Magwentshu Rooy Gugushe EM: Strategy & EM: Portfolio EM: Commercial EM: Corporate Banking and Acting Chief Acting Chief Communications Management Services Development and Structured Investments Executive Officer Financial Officer Business Banking Starts 1 March 2019 Ms Nafiza Khan Mr Sakhumzi Diza Mr Stephen Dr Litha Magingxa Ms Mpule Mr Maniki Rakgalakane Acting Chief Risk Acting Chief Risk Sebueng EM: Agricultural Dlamini MD: Land Bank Officer: Risk Officer: Credit EM: Legal Economics & EM: Human Insurance Company Services Advisory Capital Land Bank Presentation 6
Industry Matters Drought Crop Estimates 2018/2019 • Apart from the Western, Eastern and Northern Cape • Insufficient rain during optimal planting periods were experienced to the weather patterns have vastly improved with the outlook west of the country at the start of the new grain season. for another good rainfall season in the “summer crop” areas. Summary of Land Bank’s position in relation to the • Yellow maize and soya plantings proceeded in Mpumalanga, eastern Free aforementioned: State and Gauteng as expected. White maize and sunflower plantings delayed, but sufficient surplus of white maize from previous seasons. Delivery Channel Exposure NPL Collateral 1 • Final hectares planted is ca. 2% less overall than 2017/2018 season. Eastern Cape R1,197.1m R57.6m R212.8m • Better rains are predicted for the remainder of the season, but final yields may be lower due to late planting dates. Northern Cape R1,617.3m R10.4m R34.0m • Some international crop observers estimate that South Africa’s 2018/19 Western Cape R830.4m R50.1m R242.5m maize harvest could vary between 10.7 and 11.5 million tonnes. A harvest Total R3,644.8m R118.1m R489.4m at this level would mean that South Africa would be self-sufficient in the 2019/20 marketing year, accounting for an opening stock from the previous 1 – Collateral In respect of NPL’s only season. Foot and Mouth Disease • Drought relief support extended to date: • In January, an outbreak of FMD was detected in the Vhembe district in FY2019Q3 FY2018 FY2017 Limpopo, a FMD-free area and South Africa’s meat exports were Loans approved R392.5m R334.8m R207.6 m suspended and weaner calf & beef carcass prices have declined as a result. • The impact of the loss of the FMD-free status go beyond meat products Loans disbursed R339.9m R302.8m R117.8 m and affect exports of other livestock products. Free zone status can be Support available R7.5m R65.2m R192.4 m regained within a year. • Pipeline for consideration: • Task teams were put in place to convince SA's trading partners not to Applications: 11 suspend the import of red meat and its by-products from SA. Following Amount: R52.5m these engagements, trade restrictions on the export of processed products have been relaxed by many trade partners • Land Bank could potentially avail some of it internal funds • Land Bank’s exposure to the affected area is minimal and FMD will to provide further assistance. therefore have no meaningful impact on the Land Bank’s loan portfolio. Land Bank Presentation 7
Industry Matters Land Reform Risks: Opportunities: • We have identified opportunities around the implementation of • In the case of well-executed land reform that is supported by the expropriation without compensation, however it would be prudent necessary institutional arrangements and grant funding: to caution that if this process is poorly executed it could have damaging consequences for the Bank as a creditor, bringing the The Bank would be able to increase lending for organisation’s sustainability under threat. Poor execution would transformational purposes and grow the sector; include: Additional new-generation farmers, including youth and women, would be able to enter the sector thus improving Productive land being taken out of production; equality and inclusivity; No protection for creditors; New-generation farmers, especially youth, would have a No effective institutional processes; positive impact on the age profile of the sector and Poor and undefined process for selection of beneficiaries; support a future client base for the Bank; Corruption; and Additional farmers would enable job creation, especially if Lack of comprehensive support for beneficiaries. capacity is created in food-processing and the Bank could undertake value-chain based financing. • Uncertainty could jeopardise the ability of the Bank to raise funding in the domestic market. • Funding agreements with “expropriation” events of default clauses included amount to R9.0 billion, with “cross defaults” across the R41 billion funding portfolio, which would require government intervention to settle our lenders. Conclusion: While the proposal around expropriation without compensation has taken precedence, we consider improving the overall land reform programme to achieve its stated objectives as a key departure point for the process. In our opinion, as part of the broader land reform programme, expropriation (with or without) compensation, if it is well executed, has the potential for some significant economic and social benefits that may accrue to the economy of South Africa in general and to the agricultural sector in particular. Land Bank Presentation 8
Land Bank 2023/2024 Future Client Segmentation and Focus Future focus Current Commercial Unit client focus Large/ Large/ Mega farmers Mega farmers Medium scale Future focus Medium scale commercial farmers Development commercial farmers Unit Smallholder farmers Smallholder farmers Subsistence farmers Subsistence farmers Current client focus Future client focus Land Bank Presentation 10
Land Bank 2023/2024 “Development” Land Bank Land Bank Presentation 11
“Development” Land Bank Factors constraining smallholder farmers • Lack of affordable access to finance by Development Clients – the funding structure of Land Bank is effectively “Commercial”. • Beneficiaries’ balance sheets are Highly Geared (Not enough equity). • Lack of grant funding to support projects. • Inadequate recapitalisation financing. • Mismatch in tenure where land is procured through lease arrangements. • Lack of risk mitigation instruments / structures. • Inadequate Risk Insurance for projects. • Lack of appetite for investments by Private Capital. Land Bank Presentation 12
“Development” Land Bank Foundation Principles The foundation principles for a more effective development finance model for agriculture include the following: • Expand the role of the Bank beyond merely providing financial services to smallholder farmers and agri- entrepreneurs; • Debt financing on its own is not sustainable or adequate to address the challenges; • Secure access to suitable land at an affordable cost and for a reasonable term is critical; • Pre-investment support is required to develop business cases that are owned by the farmer and responds to both the bank and client’s needs; • Technical support and extension type services are an integral part of the solution; and • Blended financing that includes private sector funding and government grants administered by Land Bank is one aspect of the solution. Land Bank Presentation 13
“Development” Land Bank Potential Pre- and Post-finance Activities Expand role of Land Bank beyond receiving, evaluating and financing applications. Holistically address and support the missing elements in development farmer environment by: • Providing enhanced support in the pre-financing preparation stage through: Facilitating preparation of projects and business plans to bankable stage. Sourcing designated grant funding for this purpose. • Broadening Land Bank’s financing offering by: Incorporating mezzanine debt to address equity and collateral shortfalls. Combining Bank balance sheet mezzanine funding with grants to offer lower blended mezzanine lending rates. Conventional secured Land Bank senior debt to accompany mezzanine. • Strengthening post-financing operational performance through providing: Externally funded and monitored comprehensive business support and mentoring by co-operatives, industry bodies etc. Funded LBIC insurance risk mitigation. The Pre- and Post Finance Services will come with additional value-adding but non-revenue generating activities which will not be possible without appropriate government funding and grant support. The split of the Bank into the Development Bank and the Commercial Bank is premised on appropriate government support. Land Bank Presentation 14
Financial Overview Group Land Bank Presentation 15
Performance Overview: Summary Salient Features - Group Var % FY2019H1 FY2018H1 1 FY2018 Net interest income - R 580.4m R 583.1 R 1,278.4m Impairments (26.4%) R 108.9m R 147.9m R 55.5m Operating expenses 4.7% R 298.9m R 285.4m R 654.5m Profit after Other Comprehensive Income 20.7% R 63.1m R 52.3m R 193.9m - Banking Operations +100% R 61.9m (R 4.6m) R 182.3m - Insurance Operations (97.9%) R 1.2m R 56.3m R 11.6m Cash 23.1% R 3.2bn R 2.6bn R 2.4bn Investments - R 2.4bn R 2.4bn R 2.6bn Net loans and advances 5.2% R 41.8bn R 39.7bn R 43.4bn Total assets 6.6% R 48.5bn R 45.5bn R 49.5bn Key Ratios Net interest margin 1 (3.4%) 2.8% 2.9% 2.9% Cost-to-income ratio 1 4.9% 63.9% 60.9% 60.5% Impairment ratio (3.8%) 5.1% 5.3% 4.7% Non-performing loans (27.5%) 7.4% 5.8% 6.7% NPL coverage ratio (17.4%) 75.8% 91.8% 70.2% 1 – FY2018H1 results have been restated to reflect the impact of the LDFU reclassification from “Discontinued Operations: Disposal Group” to “Discontinued Operations” which resulted in certain liabilities and Interest expenses being reclassified to “Continuing Operations”. Land Bank Presentation 16
Performance Overview: Balance Sheet Statement of Financial Position – Strong Bank asset and liability profile FY2019H1 FY2018H1 FY2018 Var % R’m R’m R’m Cash and cash equivalents 30.1% 3,138.3 2,446.5 2,362.1 Net loans and advances 5.2% 41,817.2 39,748.5 43,418.5 Investments 1 2.8% 1,242.1 1,208.6 1,406.7 Assets of Discontinued Operations classified as held-for-sale 2 (94.8%) 9.9 188.9 147.3 Other assets 93.1% 830.5 430.2 398.0 Total assets 6.8% 47,038.0 44,022.7 47,732.6 Capital and reserves 4.5% 5,602.4 5,360.4 5,546.9 Liabilities 7.2% 41,435.6 38,662.3 42,185.7 - Funding liabilities 7.5% 40,944.4 38,081.9 41,576.3 - Other liabilities (15.4%) 491.2 580.4 609.4 Total equity and liabilities 6.8% 47,038.0 44,022.7 47,732.6 1 – Investments consist of: • Investment in Subsidiaries - 350.0 350.0 350.0 • Investment in listed shares (35.0%) 128.1 197.0 146.3 • Unlisted investments +59.8% 480.4 300.6 565.1 • Assets earmarked for Medical Aid Liability 2 (21.4%) 283.6 361.0 345.2 2 – During FY2019H1, the Bank concluded a buy-out i.r.o. some “pensioners” at a cost of R66.4m. The liability had reduced to R311.9 million. 3 – As of FY2019H1, the “Out of Mandate LDFU portfolio” had reduced significantly following the conclusion of a number of sales. Post FY2019/H1, the last property was sold and the legacy portfolio is now a thing of the past. Land Bank Presentation 17
Performance Overview Loan Book segmentation – Significant contribution by indirect channels Loan book Loan book FY2019H1 30.3% FY2018 29.1% 69.7% 70.9% CB&SI CDBB CDBB (Delivery Channel) – R’bn CB&SI (Delivery Channel) – R’bn 26 24 15.0 * FY2019H1 14.5 FY2019H1 FY2018 14.0 FY2018 13.5 6 24.3 22.6 4 7.2 7.0 13.0 2 0.5 13.0 0.4 0.6 0.6 0 0.9 0.9 0.0 0.2 Direct Indirect - SLA Indirect - WFF Direct SI - Debt SI - Equity CDBB = Commercial Development Business Bank * During FY2019H1, the SLA portfolio had reduced by ca. R1.7bn CB&SI = Corporate Bank & Structured Investments following a good harvest in respect of the 2017/2018 season. This Direct = Lending activities through Land Bank’s own infrastructure reduction is seasonal and the portfolio is expected to increase as we progress through the working capital cycle of the2018/2019 season. Indirect = Lending activities through intermediary partners, i.e. SLA, or WFF Land Bank Presentation 18
Performance Overview Satisfactory loan book performance Loan Performance - % 7.4% 6.7% Loan book Loan book 7.6% 8.8% FY2019H1 FY2018 83.8% 85.7% Stage 1: Performing loans Stage 2: Under-performing loans Stage 3: Non-performing loans 20 2.5 CDBB - % FY2019H1 CB&SI - % FY2019H1 2.0 FY2018 15 FY2018 1.5 10 16.3% 15.6% 1.0 1.9% 2.0% 1.9% 2.0% 5 9.8% 8.6% 7.9% 6.7% 0.5 0 0.0 Total NPL Direct NPL Indirect NPL Total NPL Direct NPL CDBB = Commercial Development Business Bank As at FY2019H1 there was a slight uptick in NPL’s largely in the CDBB CB&SI = Corporate Bank & Structured Investments “Indirect” portfolio. This is not as a result of an increase in NPL’s in Direct = Lending activities through Land Bank’s own infrastructure absolute values but rather as a result of the seasonal reduction of loan book which decreased by ca. R1.7bn from FY2018 Indirect = Lending activities through intermediary partners, i.e. SLA, or WFF Land Bank Presentation 19
Performance Overview Strong capital adequacy position Following Land Bank’s voluntary introduction of a number of the Total capital adequacy ratio Basel Accord’s capital and liquidity risk management practices -2.3% -1.2% during FY2016, the Bank’s balance sheet has been significantly strengthened. 18% 17.7% 17.3% 17.1% 16% The Basel-like principles include: 5.7% 5.5% 5.2% Total Capital Adequacy Ratio (TCAR) – Basel II standardised 14% approach 12% Liquidity Coverage Ratio (LCR) – Basel III; and 1.1% 1.1% 1.1% Net Stable Funding Ratio (NSFR) – Basel III 10% 8% Approved deviations: 6% 10.9% 10.7% 10.8% CAR 4% Inclusion of Government guarantees as Capital Supply 2% LCR 0% FY2017 FY2018 FY2019H1 High quality liquid assets Roll-over rates Guarantees Tier 2 Capital Tier 1 Capital CAR Covenant -0.1% 17.3% 17.30% 17.25% The year-on-year decline in CAR is as a 17.2% 17.20% -0.2% 0.0% result of slight decrease of R90 million 17.15% 0.1% in available guarantees included as 17.10% sources of “Capital Supply” 0.00% FY2018 Guarantee Capital Movements RWA FY2019H1 (T1 + T2) Land Bank Presentation 20
Performance Overview Strong Funding and Liquidity position Cash Liquidity Cover Ratio +84.0% +32.9% 3,500 400% +152.1% 394.4% 100% 3,138 +95.1% 214.3% 90% 3,000 200% 80% 2,362 R million 2,500 70% 150% 60% 2,000 50% 1,500 1,211 100% 85.0% 40% 70% 80% 60% 30% 1,000 50% 20% 500 10% 0% 0% 0 FY2017 FY2018 FY2019H1 FY2017 FY2018 FY2019H1 LCR LCR Target The Bank’s cash requirements are driven by LCR. Net stable funding ratio +25.3% +1.9% Land Bank has access to a number of liquidity 120% 100% 108.6% 110.7% facilities which it taps into from time to time, of 100.0% 100% 86.7% 90.0% 80% which: 80.0% 80% 60% 60% • R2.15 billion Committed 40% • R0.50 billion Uncommitted 40% 20% 20% As at 30 September 2018 all facilities were 0% 0% FY2017 FY2018 FY2019H1 undrawn NSFR NSFR Target Land Bank Presentation 21
Funding Matters Land Bank Presentation 22
Funding Matters Strong credit rating supports funding profile Commercial Funding: • Land Bank procures funding for two distinct business purposes: • Funding is raised from Institutional Investors and Commercial Commercial Operations Banks Development Operations • Funding is generally unguaranteed • Limited sources of capital • Funding is applied for: • Reliant on debt capital markets, as well as multilateral Corporate/ wholesale on-lending institutions for funding Corporate and commercial agribusiness Financing “primary” agriculture Credit Rating: Financing “secondary” agriculture through the value • Land Bank is rated by Moody’s chain • Global Scale Issuer Rating: Baa3 (linked to Sovereign rating) General working capital requirements • National Scale Issuer Rating: Aa1.za Development Funding: • Last rating: 12 September 2018 • Funding is raised from Multilateral Institutions Development Finance Institutions • Funding often requires Government Guarantees Rating Land Bank DBSA IDC • Funding is applied for: Agricultural “sector growth” GSIR Baa3 Baa3 Baa3 Sector transformation in terms of ownership NSIR Aa1.za Aa1.za Aa1.za Emerging farmers Commercial Banks Development funding is ring-fenced and has strict disbursement Rating ABSA First Rand Investec Nedbank SBSA conditions and reporting requirements. GSIR Baa3 Baa3 Baa3 Baa3 Baa3 NSIR Aa1.za Aaa.za Aa1.za Aa1.za Aa1.za Land Bank Presentation 23
Funding Matters Maturity Profile – RttM Amortised Cost - RttM Total Excl. PIC/ CPD FY2019Q3 – Remaining time to Maturity “RttM” FY2019Q3 R’m % R’m % 3.0% Drawn Facilities 1,304 3.0% 1,304 4.1% 14.3% 0.2% Drawn Facilities < 1 Year 20,444 47.8% 9,628 30.1% 2.5% < 1 Year 1 – 3 Years 3,818 8.9% 3,818 11.9% 1 - 3 Years 3 – 5 Years 9,934 23.2% 9,934 31.1% 3 - 5 Years 47.8% 5 - 7 Years 5 – 7 Years 1,075 2.5% 1,075 3.4% 23.2% 7 - 10 Years 7 – 10 Years 6,102 14.3% 6,102 19.1% > 10 Years > 10 Years 92 0.2% 92 0.3% Total 42,769 100% 31,953 100% 8.9% Funding Strategy Liquidity position • Land Bank continues to manage its refinancing risk responsibly, • The Bank’s liquidity position has been vastly improved with the within the parameters of its MT Target of maintaining its reliance introduction of longer-dated funding, reducing call bond on short-term funding (maturities < 12 months) below 50%. exposures, as well as keeping utilisation of committed and uncommitted facilities to a minimum. • As of FY2019/Q3, the short-term funding as a percentage of the portfolio was 47.8%. This was adversely impacted by ca. • The Bank has furthermore voluntarily prepaid some loan R1.4 bn (R500m LBK11; R900m SRN’s) longer dated issuances exposures which were maturing in a 12 month period, and that rolling into < 12 months bucket. were expensive or included negative “rating triggers” • Although the lengthening of the Bank’s funding maturity profile • As at FY2019Q3, the Bank had R3.4bn cash on balance sheet has impacted on the Bank’s funding costs and therefore (R2.4bn in FY2018) with R500m uncommitted facilities and profitability, the funding profile is now such that the Bank’s focus R835m committed facilities drawn with further access to can shift to optimisation of funding costs. R1.315bn in committed facilities. Land Bank Presentation 24
Funding Matters Reducing reliance on short-term funding -31.1% 69.4% 70 65 60 56.8% 56.4% 54.8% 55 52.2% 50 47.8% 45.2% 45 43.6% 43.2% 40 +70.6% 35 30.6% 30 25 20 15 10 5 0 FY2015 FY2016 FY2017 FY2018 FY2019H1 ST Funding (maturities < 12 months) Term Funding In line with Land Bank’s commitment to reduce reliance on short-term funding, the Bank has made great strides in extending the maturity profile, thereby reducing refinancing risk and improving general liquidity levels of the Bank. Land Bank Presentation 25
Funding Matters Diversified Investor Base 100% PIC & CPD 26.8% Banks 80% 41.1% Institutional & Other 60% 80.9% 2.3% 24.7% 40% 56.6% 48.5% +329.2% 20% 7.8% 11.3% 0% FY2009 FY2013 FY2019Q3 Land Bank’s investor relations strategy is bearing fruit. Renewed investor confidence is evident with the Bank seeing increased support from existing funders as well as new investors/ funders. The Bank has also seen a return of investors that had previously left the Bank. The Bank has a well diversified investor base across local debt capital markets, as well as foreign funding relationships with Banks and multilaterals. FY2019Q3 Related Commercial Foreign Institutional Multi-lateral Agri @ Nominal Parties DFI SOE Bank Banks Investors Investors Companies Total Drawn Facilities - - - 802 - 502 - - 1,304 < 1 Year 10,816 300 1,001 872 - 6,553 - 902 20,444 1 – 3 Years - 65 - 684 - 3,069 - - 3,818 3 – 5 Years - - 690 3,708 - 5,535 - - 9,934 5 – 7 Years - - - 512 - 563 - - 1,075 7 – 10 Years - 276 - 634 3,354 - 1,838 - 6,102 > 10 Years - - - - - - 92 - 92 Total 10,816 641 1,691 7,212 3,354 16,223 1,930 902 42,769 % Distribution 25.3% 1.5% 4.0% 16.9% 7.8% 37.9% 4.5% 2.1% Land Bank Presentation 26
Funding Matters Contraction in listed Bond Yields 350 Listed Bond Yield Curve FY2017 300 Bps over 3m JIBAR 285 FY2018/H1 269 ** FY2018 255* FY2019/H1 250 225 220* FY2019/Q3 215 200 190 195 194 155 150 140 149 135 115 100 110 With Land Bank’s funding profile at an acceptable mix, focus will now shift towards further compressing funding spreads. 50 0 1YR 3YR 5YR 7YR 10YR • Following the Bank’s public auctions in Aug 2017, Mar 2018 and Sept 2018 respectively, the Bank’s listed bond yield curve has significantly improved which has contributed to improved Cost of Funding for the Bank • The 7YR price point (*) previously translated from LBK24 (Fixed Rate Note Issued in FY2018/Q3) – point in time spread, subsequently been replaced with LBK33 (Floating Rate Note Issued in FY2019/Q3) • The 10YR price point (**) is translated from LBK28 (Fixed Rate Note Issued in FY2019/Q1) – point in time spread Land Bank Presentation 27
Funding Matters Bond Yields – Land Bank, Govi’s and SOE yield curves 10.5 10.29% 10.37% SOE’s Land Bank Govi’s 10.20% 10.10% 9.98% 10.0 9.85% 9.68% 9.46% 9.81% 9.87% 9.5 9.73% 9.56% 9.65% 9.16% 9.45% 9.32% 9.0 9.14% 9.12% 9.17% 8.64% 8.99% 9.06% 8.90% 8.83% 8.92% 8.5 8.31% 8.71% 8.48% 8.57% 8.06% 8.42% 8.37% 8.0 8.12% 7.64% 8.02% 7.88% 7.60% 7.5 7.67% 7.33% 7.0 6.5 Assumed 3m Jibar = 7.15% (as of 3 Jan 2019) 6.0 3m 6m 9m 1YR 2YR 3YR 4YR 5YR 6YR 7YR 8YR 9YR 10YR • It should be noted that the SOE Yield Curve includes all debt, unguaranteed and otherwise • 3m – 12m yields are derived from Money Market yields and > 12m yields from Capital Market yields • Land Bank as an Issuer of unguaranteed debt prices favourably to the SOE Curve, with pricing points as follows: 1YR = 8.48%; 3YR = 9.14%; 5YR = 9.45%; 7YR = 9.65%; and 10YR = 9.87%. • Yield Curves derived from Reuters (Money Market) and JSE (Capital Market) data and represents current MtM yields Land Bank Presentation 28
Funding Matters DMTN issuance summary and funding needs Notes on the current position of the R30bn DMTN Programme • Issued under the programme: R21.175bn During May 2018 Land Bank • Matured: R 8.168bn increased its DMTN Programme size to R30 billion • Currently Outstanding: R 13.000bn (21 bonds) • Available: R 8.825bn Summary of significant maturities to 30 June 2019 DMTN Maturities Bi-lateral maturities Instrument Amount Date Instrument Amount Date LBK05 (5YR FRN) R0.252bn Feb 2019 PN’s and/ or FRN’s R0.293bn Apr 2019 LBK25 (1yr) R0.500bn Mar 2019 PN’s and/ or FRN’s * R1.100bn Jun 2019 Total R0.752bn Total R1.393bn The total refinancing need to 30 June 2019 amounts to R0.752bn (listed bonds) and R1.393bn (PN’s and/ or FRN’s). * - Promissory Notes with single counter party and could potentially be refinanced on bi-lateral basis Planned DMTN Issuances to 31 March 2019 Land Bank intends to prepay ca. R1.43 billion existing, more expensive debt with • FY2019/Q4: R1.0bn Immediate refinance need negative rating triggers linked to the Sovereign Rating and refinance same with cheaper bond funding across similar remaining tenors. This will effectively release all Government Guarantees across the Land Bank’s “Commercial” funding portfolio and further reduce the State’s contingent liability i.r.o. Land Bank Land Bank Presentation 29
Funding Matters Summary of funding activities for FY2019/Q3 Funding activities excl. FY2019 FY2018 FY2019/Q1 FY2019/Q2 FY2019/Q3 FY2019/Q4 Call Bonds and Facilities Total Total Total maturities R8.7bn R13.4bn R10.0bn - R32.1bn R46.4bn Debt rolled over R8.0bn R13.1bn R9.0bn - R30.1bn R38.0bn New funding raised * R1.6bn R1.5bn R2.7bn - R5.8bn R17.5bn Pre-payments R1.7bn R1.4bn - - R3.1bn R3.1bn * Land Bank has used some of the proceeds from “new funding FY2019 to date has been a good funding year with Land raised” to pay off existing debt as follows: Bank achieving average roll-over rates as follows: Listed Bonds (LBK05) R0.50bn 12 Month Guaranteed Syndicated Loans R2.63bn # Roll-Over Rates FY2019/Q3 Rolling Ave Total R3.13bn Excl. PIC/ CPD** 56.0% 70.0% # As of 28 September 2018, the Bank’s R2.7 billion guaranteed PIC/ CPD 100.0% 100.0% syndicated loan has been prepaid in full, which has become too expensive following a number of Sovereign Rating downgrades. Total 87.0% 89.0% ** This was adversely affected by certain maturities not being rolled during the year due to Investor liquidity needs, or at Land Bank’s insistence where investor yield expectations were unrealistic. Land Bank Presentation 30
Debt Management Programme Sinking Fund Land Bank Presentation 31
Debt Management Programme Sinking Fund • In line with the Bank’s commitment to its Shareholder, the Bank has appointed an Investment Manager/ Advisor to establish a single/ multiple “sinking fund” structures for Bank. Such a sinking fund will further enhance the Bank’s Balance Sheet, liquidity position, as well as reduce repayment risk of future maturing debt commitments. • During FY2019H1, the Land Bank made its first investment into the sinking fund programme, by way of a R500million bullet investment allocated 100% to a combination of smaller established and emerging black Asset Managers: Manager 1 with AUM R17.4 billion – 40%; Manager 2 with AUM R3.8 billion – 30%; and Manager 3 with AUM R 2.6 billion – 30%. • The Bank intends to increase this fund to ca. R1.0 billion over the short to medium term and has already earmarked a fourth manager, a newly established majority black woman owned manager with AUM of R1.2 billion, whom will be allocated R150 million by 31 March 2019, availability of liquidity dependent. • Furthermore, in line with the Bank’s development/ transformation commitment Land Bank intends on placing at least 50% of these funds with black Asset Managers, while at least 50% of funds will be placed through black Brokers. Land Bank Presentation 32
Interest Rate Risk Management Managing Basis Risk Land Bank Presentation 33
Interest Rate Risk Management Background and Introduction • The Bank’s main driver of earnings is Net Interest Income, which is the difference between interest received on loans granted and interest paid on funding raised. • As such, the Land Bank developed an Interest Rate Risk Management Strategy to manage the Bank’s basis risk where Land Bank incurs JIBAR based interest expenses and earns Prime based interest income, as the interest rate reset profiles of JIBAR and Prime differ and do not move parallel when interest rates move up or down. • In addition to the management of Basis Risk, the Bank may also elect to swap floating rates to fixed rates and vice versa. • The swaps only entail the exchanging of cash flow payments between Land Bank and Counterparties • The strategy was approved by Land Bank Board 29 May 2017, with implementation having commenced 1 June 2017. • The strategy was reviewed and approved on 19 April 2018 and implementation is ongoing. • As of FY2019Q3, the Land Bank had entered into 75 swap transactions to the nominal value of R9.92 billion with the swaps fair value totalling R80.9 million (asset). Land Bank Presentation 34
Bond Auction March 2019 Land Bank Presentation 35
Listed Bond Auction March 2019 Issuance – Optional redemption features Below there are a number of conditions set out in the Programme Memorandum, to be activated in the APS, which provides noteholders the opportunity to redeem an instrument under the following circumstances: • Redemption in the event of a Breach of Anti-Corruption Laws or Corporate Governance Policies • Redemption in the event of a Change of Control • Redemption following the disposal of all or a greater part of the Issuer’s business, assets or undertakings • Redemption in the event of a failure to maintain JSE Listing and Rating • Redemption in the event of a Change to the Conduct of Business The Land Bank remains committed to adhering to strict governance and control measures, and this can be seen in the protections that it gives its debt providers Land Bank Presentation 36
Listed Bond Auction March 2019 Issuance – Draft termsheet DMTN Programme Details Issuer The Land and Agricultural Development Bank of South Africa (“Land Bank”) Issuer Rating Moody’s: Aa1.za DMTN Programme Size R30 billion listed on the Interest Rate Market of the JSE Transaction Details Trade Date [20] March 2019 Settlement Date T + 3 days Targeted Issue Size [R1.0bn] across the Notes Instrument Listed Floating and/or Fixed Rate Notes Stock Code [LBK34] [LBK35] [LBK33 Tap] [LBK36] Maturity Date Mar 2022 Mar 2024 Nov 2025 Mar 2029 Term 3-year 5-year 7-years 10-years Price Guidance [TBC] bps [TBC] bps [TBC] bps [TBC] bps Pricing TBC at Trade Date Benchmark Final tenors on offer and term-sheet will be finalized once market sounding has been concluded. This will be a function of prevailing market conditions Land Bank Presentation 37
Notes Land Bank Presentation 38
Thank You! 420 Witch-Hazel Avenue Eco Glades, Block D, Eco Park Centurion Pretoria Disclaimer “This presentation is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on to any other person or published in whole or in part for any other purpose. This presentation does not constitute an offer or invitation to subscribe for or purchase any securities and nothing contained herein shall form the basis of any contract or commitment whatsoever. Any decision to purchase securities in the context of a proposed offering of securities, if any, should be made solely on the basis of information contained within an offering circular, programme memorandum or prospectus published in relation to such an offering. This presentation is being communicated only to persons who have professional experience in matters relating to investments and to persons to whom it may be lawful to communicate it to (all such persons being referred to as relevant persons). This presentation is only directed at relevant persons and any investment or investment activity to which this presentation relates is only available to relevant persons or will be engaged in only with relevant persons. Solicitations resulting from this presentation will only be responded to if the person concerned is a relevant person. Other persons should not rely or act upon this presentation or any of its contents. No independent verification of the statements and information set out in this presentation has been made. The Land and Agricultural Bank of South Africa (“Land Bank”), its directors, officers, employees, representatives and agents do not make or give any representation, warranty or guarantee (express or implied) as to the accuracy, reliability or completeness of the statements and information contained in this presentation or subsequently provided to any relevant persons. Accordingly, Land Bank, its directors, officers, employees, representatives and agents will not be liable for any direct, indirect, punitive, incidental, special and/or consequential damages, loss or harm arising out of or in any way connected with the use and/or reliance of the information set out in this presentation and such responsibility is expressly hereby disclaimed and excluded. Nothing in this presentation should be construed as legal, financial, accounting, tax or other advice and relevant persons should determine for themselves the relevance of the information contained in this presentation. By participating in this presentation or by accepting any copy of the slides presented, you agree to be bound by the foregoing limitations.” www.landbank.co.za Land Bank Presentation 39
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